VI. Federal Securities

Question 1

Debt Securities

Answer 1

Investor LENDS capital to the corp. to be repaid (usually w/interest) as specified in the agreement = CREDITOR

Question 2

Equity Securities

Answer 2

Investor BUYS stock from the corp. which generates capital for the biz. OWNER

Question 3

Rule 10b5 Aimed at DECEIT

Answer 3

Fed. Law prohibits fraud or misrepresentation in connection w/the purchase or sale of any security (debt or security)
-Some point must use instrumentality of interstate commerce

Misrepresentation; Insider trading; Tipping

POSSIBLE π:

• SEC
• Private action for damages by BUYER OR SELLER of Securities (who was defrauded)

POSSIBLE ∆ (any person including entities):

• Co. issues misleading press release
• B or S of securities who misrep. material info.
• Tipper or Tippee
• B or S who trades on material inside info.

Question 4

Section 16(b) Aimed at Speculation by Directors, Officers, and 10% SH –> SL

Answer 4

Fed. Law provides for recovery by the corp. of “profits” gained by certain insiders from buying and selling the Co.’s stock.
-The CORP.’s claim

ONLY 3 possible ∆: Director; Officer; SH owning over 10%
-BOUGHT OR SOLD except for SH must be AND

• APPLIES ONLY to BUYING and SELLING STOCK w/in a single 6-month Period
  
  • FOCUS ON THE SALE